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Matakuliah
Tahun
Versi
: J0434 / Ekonomi Managerial
: 01 September 2005
: revisi
Pertemuan < 12 >
Pure Competition and Monopolistic
Competition
Chapter 10
Learning Outcomes
Pada akhir pertemuan ini, diharapkan mahasiswa
akan mampu :
menunjukkan perbedaan harga, output dan
strategi di pasar: pasar persaingan sempurna,
dan pasar monopolistik (C3)
Outline Materi
• Pure Competition and Monopolistic Competition
• Forces of Competition
• Product differentiation
Pure Competition and Monopolistic Competition
• Pure competition is a standard against which
other market structures are compared. The
product is perfectly undifferentiated.
• When there are many firms, but the product is
differentiated, the market is monopolistically
competitive.
– This brand competition often involves
advertising campaigns and promotional
expenditures to stress often minor distinctions
among products
2002South-Western Publishing
Forces of Competition
• Michael Porter, in his Competitive Advantage, lists 5 forces that
determine competitive advantage.
– Substitutes (threat of substitutes can be offset by brands and
special functions served by the product).
– Potential Entrants (threat of entrants can be reduced by high
fixed costs, scale economies, restriction of access to
distribution channels, or product differentiation).
– Buyer Power (threat of concentration of buyers).
– Supplier Power (threats from concentrated suppliers of key
inputs affect profitability).
– Intensity of Rivalry (market concentration, price competition
tactics, exit barriers, amount of fixed costs, and industry
growth rates impact profitability).
Monopolistic Competition
• Monopolistic Competition
– MARKET STRUCTURE
• Many Firms and Many Buyers
• Easy Entry & Exit
• PRODUCT DIFFERENTIATION ! ! !
• Historical Background
– Joan Robinson “Economics of
Imperfect Competition,” 1933
– Edward Chamberlin, “Theory of
Monopolistic Competition, 1933
• Small Groups & Large Groups
Product
Differentiation
Among Gas
Stations
Product Differentiation
• Differentiation occurs when consumers perceive that
a product differs from its competition on any physical or
nonphysical characteristic, including price.
• Examples: restaurants, dealer-owned gas stations,
Video rental stores, book & convenience stores, etc.
• Assumptions of the Model:
– Large number of firms
– Differentiated Product
– Conditions of Cost and Demand are Similar
– Easy Entry & Exit
Basic Model of
Monopolistic Competition
MC
• In the Short Run
– produce where MR= MC
– price on the demand curve
• NOTICE:
PM
AC
– P > MC
– economic profits exist
P > AC
– there exists incentives for
entry into this industry
SHORT RUN DIAGRAM
D
QM
MR
Profits in the SR Induces Entry
• Entry in this industry “steals”
customers.
• Demand curve shifts inward
• RESULTS
– MR = MC (like monopoly) P
– P = AC (like competition)
– Profits in LR are zero (like
competition)
– not at Least Cost Point of AC
curve (like monopoly)
MC
AC
D
D’
Q
LONG RUN DIAGRAM
MR
Properties of Monopolistic Competition
• Dead Weight Social
Loss continues to
exist
• Inefficient Production
– EXCESS CAPACITY
• not at least cost
point of AC curve
– Could Avoid Excess
Capacity by JOINTLY
PRODUCING at the
same plant
• Kroger Salt & Morton
Salt OR Sears’
Kenmore and Whirlpool
• Location -- hard to
jointly produce
• Does the decline in
profits stifle
innovation?
• Is there too much
product differentiation?
A Continuum of Market
Structures
pure competition
monopolistic competition
oligopoly
monopoly
Oligopoly
1.
2.
3.
few firms
the products may be differentiated or
standardized
there is a noticeable degree of
interdependence among the firms
Many outcomes are possible in oligopolies,
ranging from acting nearly competitively to
acting like a monopoly.
Monopoly
1.
2.
3.
one firm
a perfectly differentiated product (low
cross price elasticities with other
products.
substantial barriers to entry, such as
absolute cost advantages, consumer
loyalty, scale economies, large capital
requirements, or legal
barriers to entry.
Summary
• Pure competition is a standard against
which other market structures are
compared. The product is perfectly
undifferentiated.
• When there are many firms, but the
product is differentiated, the market is
monopolistically competitive.